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THE 

PETROLEUM PROBLEM 

1 = ; -; ^ 


Some Fundamentals of the Petroleum Problem 
The Petroleum Problem of the United States 
The Petroleum Problem of the World 



By 

M. L. REQUA 

n 


} 



Reprinted from 

THE SATURDAY EVENING POST 

Copyright 1920, by the Curtis Publishing Company 





r 



TlH° 


Some Fundamentals of the 
Petroleum Problem 


N O QUESTION before the nations of the world today is more 
acute, more urgently in need of expert and intelligent treatment, 
than the problem of raw materials. The world is confronted 
by a situation in which ever-increasing demands are faced by constantly 
diminishing supplies. Once gone, many of our raw materials can never 
be replaced. It is only within the last few weeks that the Secretary of 
Agriculture, in a report to Congress, stated that three-fifths of all our 
timber is gone and we are using the remaining timber four times as fast 
as we are growing it. 

In order that an intelligent comprehension of the growing needs of 
the United States—the largest consumer—may be gained, the following 
table is inserted to show the astonishing rapidity with which the pro¬ 
duction of certain necessary and basic raw materials has developed: 



Iron 

Coal 

Copper 

(Millions 

Petroleum 


(Millions 

(Millions 

(Millions 


of tons) 

of tons) 

of lbs.) 

of bbls.) 

1870.. . . 

. 1.6 

33 

28 

5 

1880.. . . 

. 3.8 

71 

60 

26 

1890.. . . 

. 9.0 

157 

250 

46 

1900. . . . 

.13.0 

269 

606 

63 

1910.. . . 

.27.0 

501 

1080 

209 

1918. . . . 

.38.0 

684 

1994 

355 

1919. . . . 

.30.0 

544 

1289 

378 


It may be noted that in the pastfifty years our production of iron has 
increased twenty fold, of coal sixteen fold, of copper forty-six fold, and 
of petroleum seventy-two fold, and that the consumption of petroleum 
continued to increase in 1919 while the three other great staples 
declined. 

Of all these commodities petroleum takes the lead in the rapidity 
with which its manifold uses have expanded. The increase per capita 


l 

JL 














in consumption of petroleum in the United States still more vividly 
illustrates the situation: 


1860 

1870 

1880 

1890 

1900 

1910 

1919 


Barrels 

.016 

-.13 

.52 

.72 

.83 

2.32 

3.50 


Whatever may be the treatment accorded this vital problem of 
raw materials in the years to come, it must differ radically from the 
unfortunate and unwise method of the past, which consisted of the very 
simple plan of utterly ignoring the needs of the future. Ways and 
means must be found to place authority in the hands of experts who 
can and will plan in advance and see that these plans are carried into 
effect sufficiently in advance of the necessity, rather than wait and 
attempt to cure after the patient is moribund. 


Our Vanishing Oil Supply 

Practically all the machinery in the world to-day requires petroleum 
in some form for purposes of lubrication. Factories, railroad cars, 
power-driven ships, automobiles, farm machinery, trucks and tanks— 
all demand petroleum in one form or another. Not a wheel can turn 
without it. No successful practical substitute for it has yet been dis¬ 
covered. 

In the words of the former Secretary of the Interior, Franklin 
K. Lane: “. .. . Petroleum is a priceless resource, for it can never be 
replaced. Trees can be grown again upon the soil from which they 
have been taken. But how can petroleum be reproduced? It has 
taken the ages for Nature to distill it in her subterranean laboratories. 
We do not even know her process. We may find a substitute for it, 
but have not yet. It is practically the one lubricant of the world 
to-day.” 

This may sound trite to those who know the situation, but, as 
showing how little heed even experts have given to such matters, it may 
be interesting to learn that within the year an admiral of the United 
States Navy confessed that he had not realized that the exhaustion of 
our petroleum resources has direct and vital bearing upon the supply 
of lubricating oil for our battleships and other vessels. 

/.... / < / 6 a; </ , 









We look upon our water powers as inexhaustible, yet the very 
machinery that makes possible the utilization of white coal depends 
upon petroleum for its every revolution. Time was when lard oil, 
whale oil or other similar substances served to satisfy the meager de¬ 
mands for lubricants; the day has long since passed, however, when 
such products might adequately meet the demands of modern industry 
and transportation. 

This is the age of machinery, power driven; and the future bids 
fair to outstrip the past in substitution of machine work for man power. 
The period following the discovery of steam power by Watt witnessed 
greater advancement in the use of machine power than had the entire 
world history prior to that event. It is only ninety years since the first 
iron railway track was laid in the United States; comparatively young 
men remember the introduction of the telephone, the electric light and 
electric dynamo; youths still in college recall the introduction of the 
automobile; and youngsters yet at school saw the flight of the first 
practical airplane. We live in a different world from that which sur¬ 
rounded our great-grandparents. For better or for worse, the world of 
1920 has been transformed from the world of 1820; and its transforma¬ 
tion has been brought about by the discovery and utilization of steam 
and electricity—neither one of which can generate power unless the 
machinery is first lubricated by products of petroleum. 

Of all the great raw-material problems confronting the world 
to-day the most outstanding and acute is the problem of its petroleum 
supply. The war brought home to the world the vital necessity for 
sustained petroleum production, for without petroleum in its varied 
forms there could have been no victory. General Foch warned us that 
interruption of the petroleum supply would necessitate an entire change 
of campaign and if long continued might result in the loss of the war; 
and the Earl of Curzon said: “The Allies floated to victory on a wave 
of oil.” 

Diesel Engine Efficiency 

Our battleships, cruisers, destroyers and submarines are built to use 
liquid fuel exclusively and cannot be readily remodeled. Airplanes, tanks, 
trucks, tractors—all rely upon petroleum for motive pow r er and lubri¬ 
cation, and turning to peaceful conquest we find that the difference 
between success and failure in our shipping program will depend upon 
the use of fuel oil. The United States has made tremendous efforts 
in the past few years to build up a merchant marine, and yet the public 
at large fails to realize what has been so succinctly stated by John H. 
Rosseter, formerly Director of Operations of the United States Shipping 


3 


Board, that “The question of oil versus coal is to be briefly summarized 
as success versus failure. Unless we have fuel oil for our ships we must 
relinquish our aspirations for an overseas commerce under the Ameri¬ 
can flag.” 

That this statement is not an exaggeration is evidenced by the 
facts that four ships burning oil will do the work of five that burn coal 
and that from the coal mine to the fireroom oil saves at least fifty men 
a ship. But even this is not the end of the story, for the reason that 
when consumed in the Diesel type of marine engine oil is three times 
more efficient than when burned under boilers to generate steam. 
E. G. Grace, president of the Bethlehem Steel Corporation, gives it 
as his opinion that the Diesel engine has been perfected to the point 
which makes its substitution for the steam engine merely a matter of 
time—always provided the requisite fuel is obtainable; and the Diesel 
type of engine relies solely upon one of the petroleum products having a 
gravity of about twenty-five degrees Baume, closely approximating the 
so-called gas oil used in the manufacture of illuminating gas. 

The most notable increase in the consumption of petroleum pro¬ 
ducts has been due to the phenomenal growth of automotive transpor¬ 
tation. It is only twenty-five years since the first commercially practical 
automobile was demonstrated in the United States, and in these few 
brief years the country has seen the amazing development of passenger 
cars, motor trucks and tractors, while the airplane now renders even 
more complex and difficult our problem of supply. This tremendous 
growth of a new and convenient form of transportation has placed an 
overwhelming burden upon the supply of gasoline and lubricants. The 
6,000,000 automobiles, 1,000,000 trucks and 300,000 tractors in use at 
the beginning of 1920—including those building during the year— 
represent when translated into oil products a consumption requirement 
of nearly 120,000,000 barrels of gasoline and 7,200,000 barrels of motor 
oil. And this is only a beginning, in view of the eventual possibilities 
of automotive transportation— which tw T enty years ago was nonexistent 
and a decade ago was of insignificant proportions. 

The development and increasing use of the internal-combustion 
engine in its various types have brought this about, and it is significant 
that this type of engine is to all intents and purposes as efficient in units 
of five or ten horse power as in units of hundreds and thousands. Herein 
lies the secret of the supremacy of this type of engine to-day over all 
others. 

% 

The cold statistics illustrating the remarkable growth of automotive 
transportation in the United States show as follows: 


4 


1910. 

Number of Cars 
and Trucks 

. . . 400,000 

Number of 
Tractors 

6,000 

1911. 

. . . 600,000 

10,000 

1912. 

. . . 677,000 

15,000 

1913.. . . 

. . . 1,009,000 

16,000 

1914. 

. . . 1,253,000 

17,000 

1915. 

. . . 1,754,000 

20,000 

1916. 

.. . 2,423,000 

30,000 

1917. 

. . . 3,544,000 

50,000 

1918. 

. . . 4,941,000 

90,000 

1919.... 

.. . 6,146,000 

162,000 

1920 (estimated). . . 

. . . 7,523,000 

300,000 

1921 (estimated). . . 

. . . 9,000,000 

450,000 


The development of the internal-combustion engine marks a vital 
epoch in the transformation of the world’s industrial and social history, 
and it is obvious that we shall not go back to the use the steam unless 
our petroleum supply fails. Even the most obtuse must recognize the 
terrific upheaval that would follow the forced abandonment of the 
internal-combustion engine. Given the supply, fuel oil would displace 
coal as rapidly as machinery could be installed for its proper combus¬ 
tion, but that such displacement will ever take place is entirely unlikely, 
for petroleum does not exist in sufficient quantity to make possible its 
competition with coal; that it has not already superseded coal is only 
because of its less abundant distribution in the earth’s crust. 

Oil is by far the superior fuel; generating almost double the heat 
units per pound, it leaves no ashes to be disposed of and is clean beyond 
all comparison. It not only cuts more than in half the fireroom gang, 
but in the form of various lubricants it oils the machinery; in the form 
of gasoline and kerosene it supplies power and light and heat. In fact, 
petroleum does more effectively and economically all that coal can do, 
and more. As asphaltum it roofs our houses and paves our streets; 
as fuel oil it supplies motive power on many of our Western railroads— 
to the total elimination of the ubiquitous cinder—and it performs 
innumerable other services directly beneficial and necessary to the well¬ 
being of mankind and the progress of the world’s industry. If petro¬ 
leum were as widely distributed and as abundant throughout the world 
and as accessible as coal, it would long ago have supplanted coal as a 
fuel: 

Britain*s Oil Policy 

That Great Britain fully realizes the vital need for and importance 
of controlling sources of petroleum supply throughout the world is 
easily demonstrated by the trend of events and the utterances of 


5 














English officials. As long ago as January, 1916, Walter Runciman, 
president of the Board of Trade of Great Britain, stated in the course 
of a speech in Parliament that the future policy of Great Britain would 
be to control not only the coal of the world but the oil of the world 
as well. In an article appearing in the Nineteenth Century and After, 
October, 1918, over the signature of Sidney Brooks—an article said to 
be inspired—the case for petroleum in behalf of the British Empire 
was set forth in these words: 


“We are realizing, and quite rightly, the transcendent importance 
to our industrial future of getting into our own hands the control of 
as many raw materials as possible. Well, here is a raw material second 
to none in its manifold usefulness; indispensable, indeed, to the pro¬ 
cesses of modern manufacture and transportation, and offering itself 
as a supreme test of whatever aptitude we may possess for commercial 
statesmanship on the big scale. 


“The best policy for us as a nation is to encourage the investment 
of British capital in oil enterprises abroad and to see by appropriate 
legislation that the companies so formed remain in perpetuity under 
the British flag.” 


A flood of interesting information on the vital necessity for petro¬ 
leum as related to national life will be found in Volume II of Lord 
Fisher’s Records, Chapter XII, headed Notes on Oil and Oil Engines. 
It is regrettable that the chapter cannot be quoted here in full, but 
one or two excerpts will have to suffice: 


“With two similar dreadnoughts, oil gives three knots more speed. 

“The use of fuel oil increases the strength of the British Navy 
thirty-three per cent. 

“The internal-combustion engine with one ton of oil does what it 
takes four tons of coal to do! 

“It’s criminal folly to allow another pound of coal on board a 
fighting ship—or even a cargo ship, either!” 


Striking Testimony 

It was in 1914 that H. W. A. Deterding, directing head of the 
Royal Dutch Shell group, said that, unless unforeseen events occurred, 
within ten years the Dutch Shell would dominate the fuel-oil supply 
of the world and that no oil-burning vessel might sail the seas save 
with Dutch Shell oil in its bunkers. Quoting again from Lord Fisher’s 
Records, Page 195: 


6 


“Mr. Deterding, in his evidence before the Royal Commission* 
confesses that he possesses in Rumania, in Russia, in California, in 
the Dutch Indies, in Trinidad, and shortly in Mexico, the controlling 
interest in oil. The Anglo-Persian Company also say he is getting 
Mesopotamia and squeezing Persia, which are practically untouched 
areas of immense size reeking with oil. Without doubt Mr. Deterding 
is Napoleonic in his audacity and Cromwellian in his thoroughness. 
Sir Thomas Browning in his evidence says that the Royal Dutch Shell 
combination is more powerful and aggressive than ever was the great 
Standard Oil Trust of America.” 


“Let us therefore listen with deep attention to the words of a man 
who has the sole executive control of the most powerful organization 
on earth for the production of a source of power which almost doubles 
the power of our Navy while our potential enemies remain normal in 
the strength of their fleets. What does he advise? 




“He says: ‘Oil is the most extraordinary article in the commercial 
world, and the only thing that hampers its sale is its production. There 
is no other article in the world where you can get the consumption as 
long as you make the production. In the case of oil, make the pro¬ 
duction first and the consumption will come. There is no need to look 
after the consumption, and as a seller you need not make forward 
contracts, as the oil sells itself.’ Only what you want is an enormously 
long purse to be able to snap your fingers at everybody, and if people 
do not want to buy it to-day, to be able to say to them: ‘All right; 
I will spend a million sterling in making reservoirs, and then in the 
future you will have to pay so much more.’ The great point for the 
Navy is to get oil from someone who can draw supplies from many 
spots, because no one spot can be absolutely relied on.” 

Only as recently as May 5, 1920, announcement was made of the 
completion of a scheme for all-British control of the Royal Dutch Shell 
group, including the new fields in Mesopotamia. There will be a clear 
British majority in the directorate, by agreement with the Royal Dutch 
group, and Sir John Cowans, Quartermaster-General of the British 
Army during the war, will be the managing director. 

The British Government already owns the controlling interest in 
the Anglo-Persian Oil Company; and wherever oil is suspected to exist 
there will be found English capital working in closest harmony with the 
British Government in securing possession of desired territory. 

If there is to be any hope of successful competition in obtaining 
foreign sources of supply the Government of the United States must be 
willing and prepared to give similar encouragement to American oil 


7 







companies. American capital without the support of the American 
Government would be utterly unable to gain foothold in Mesopotamia, 
Palestine, the Caucasus, Africa and other foreign fields. It may shock 
some of our citizens to learn that domination of the world supply of 
petroleum is now claimed by Great Britain, where a government wiser 
and more farsighted than our own has not only encouraged the activity 
of its nationals but has actually taken over the controlling ownership 
in the Anglo-Persian and is practically the controlling factor in the 
Royal Dutch Shell group. 

Truly, not an alluring picture for Americans to contemplate! 
But if the painted picture is not to be transformed into stern reality 
the United States must act toward petroleum with far greater wisdom 
in future than has characterized its procedure in the past. 


The Petroleum Institute 

The organization of the American Petroleum Institute is a step 
* in the right direction, as it gives the petroleum industry a means of 
collectively reaching the public from time to time with its statements 
of conditions within the industry. It is the outgrowth of the National 
Petroleum War Service Committee, which so satisfactorily represented 
the industry during the war. The lessons learned at that time should 
not be wasted, and the American Petroleum Institute seems a logical 
sequence to the National Petroleum War Service Committee as a means 
of making available the cooperative effort which during the war was 
so highly efficient. Few realize that the oil of the nation was to all 
intents and purposes pooled as a unit during the war period, and that 
under the direction of the distributing committee—composed of the 
sales managers of all the great marketing companies—the oil upon the 
Atlantic seaboard was handled, under the priority distribution list, 
in such way as to accomplish results that would otherwise have been 
impossible. 

The war is over. We shall not soon reconstruct the war-service 
committee; but its lessons must not be lost, and it is only through such 
an organization as the American Petroleum Institute that this can be 
accomplished. 

As trustees administering a wasting asset, the highest type of 
organization should be demanded as a national benefit. An attempt at 
such action under existing laws would probably result in fine or im¬ 
prisonment, or both. 

The charter of the American Petroleum Institute states these 
objects: 


8 



I o afford means of cooperation with the Government in all matters 
of national concern; and 

To foster foreign and domestic trade in American petroleum pro¬ 
ducts; and 

To promote in general the interests of the petroleum industry in 
all its branches; and 

To promote the mutual improvement of its members and the study 
of the arts and sciences connected with the petroleum industry. 

Surely such laudable aims are of benefit to our people, and yet 
some of the largest companies refrained from joining the institute for 
fear of prosecution under existing laws. 

It would be impossible within the limits of an article such as this 
to describe the manifold activities of such an organization as the 
American Petroleum Institute. Statistics, well logs, water troubles, 
methods of production—an infinite variety of problems, at home and 
abroad—receive attention, and in cooperation with the Bureau of 
Mines and other Government departments satisfactory solutions 
are attempted. Certain it is that such an organization could 
speak more effectively for the petroleum industry than could any single 
corporation. 

No more important work could be undertaken by such an organi¬ 
zation than the standardization of specifications. Much work along 
this line has been done by a committee on standardization of petroleum 
specifications, created by act of the President during the war period, 
and still in existence. Specifications throughout the United States 
were found to be little short of chaotic. Some railway specifications 
were found to be of such character that lubricating oil had to be shipped 
from Pennsylvania to California, to the total exclusion of California 
products, notwithstanding the fact that California lubricants are 
equally satisfactory for the purpose. 

We might as well face facts frankly, once and for all. If we are 
to maintain our leading position in the petroleum industry of the world 
it can only be through the activities of oil companies of first magnitude 
with sources of supply in all parts of the world; small companies cannot 
hope to compete against the great aggregations of foreign capital plus 
government assistance. And if we are to deal adequately with this 
preeminently vital problem new T methods must be devised and adopted, 
based upon cooperation and encouragement — not antagonism — 
between government and industry. 


9 


Our World Obligation 

The present situation is only one of many examples of our failure 
as a people adequately to comprehend and intelligently to solve problems 
having to do with our raw materials in their relations to modern civili¬ 
zation. These new and complex problems can be solved only by the 
application of intelligent cooperative commercial effort, not only wise 
but sympathetic, between government and industry. The world’s 
liberty was almost lost through unpreparedness and stubborn refusal 
to take heed; are we now to refuse to prepare for the great economic 
struggle that will decide the control of the world’s raw materials? 

Because of its relative scarcity as compared with iron and coal, 
petroleum is to-day the most vitally essential mineral in the industrial 
field; of all raw materials none presents a problem so perplexing, so 
difficult of adequate solution. The world obligation with reference to 
petroleum, therefore, must not only receive immediate consideration 
but must be met satisfactorily, because the prompt and proper solution 
of the petroleum problem will not only be an important element in a 
lasting peace but it will in large measure, if properly dealt with, conserve 
for posterity this—water alone excepted—the most valuable of all the 
minerals of earth. 


10 


The Petroleum Problem of the 
United States 


I T HAS been said so often in official Washington that it has become 
ancient history, published so often in trade journals that it no 
longer attracts comment, referred to in press dispatches until it is 
no longer news, and yet it is still worth repeating: “The United States 
produces and consumes over two-thirds of the annual petroleum output 
of the world, and more than ninety per cent of all the automobiles of 
the world are within United States territory.” 

We have the dominant interest in the petroleum problem and its 
successful solution because petroleum is of greater importance to us than 
to the entire remainder of the world combined. In order to supply 
and guarantee a continuous flow of petroleum to meet the present and 
much greater future demand, it is the part of wisdom that we not only 
guard carefully what we have at home but also acquire additional re¬ 
serves in foreign lands. 

Estimates have been made by the United States Geological Survey 
in an attempt to measure our domestic reserves. Perhaps the survey is 
correct; it may be woefully wrong; but for the purpose of this discussion 
it is quite immaterial, in that the argument here set forth is intended 
to prove that we must equip ourselves with maximum reserves of petro¬ 
leum in the light of the facts already developed as to consumption. 
In part at least we must seek these additional reserves in foreign 
territory; certainly in view of known conditions no other course can be 
followed with justification and with due regard to national welfare. 

There is ample petroleum in the world to last for a considerable 
period. American companies would continue to buy, refine and market, 
even should our domestic supplies fail, but they may be buying from 
foreign oil corporations; we may have no control over the sources of 
supply and the price may be anything they choose to ask. 

The problem is not so much that of our petroleum companies as 
it is of the nation as a whole. Can we afford to permit ourselves to 


11 



become dependent upon foreign oil corporations, especially the great 
Anglo-Persian-Dutch-Shell combine, for even a portion of our crude 
petroleum? We have heard much of the cry “All British”; it will be 
well for us, in the national interest, to make our petroleum industry 
“All American.” 


What the Government Could Do 

To do this there must be the closest harmony and cooperation 
between the Government and the oil industry This cooperation has 
been refused in the past, and counter proposals of government ownership 
and operation have been put forward, but such action would not only 
be foredoomed to failure, it would seriously jeopardize the industrial 
life of the entire nation. Any attempt to follow such a course in America 
would, in the light of European experience, be without excuse; the result 
of the socialistic experiments tried in Europe in the last two years has 
been tersely epitomized by Herbert Hoover in five words: “Socialism 
in Europe is bankrupt.” 

In order to comprehend intelligently our position and discuss 
adequate remedies it will be necessary to review briefly the statistical 
growth of the petroleum industry in the United States from its inception, 
and—based upon past experience—prognosticate future requirements. 

We are the petroleum-consuming country of the world; we consume 
twenty times more oil per capita than Great Britain; we build naval 
vessels equipped to burn nothing but oil; we construct a mercantile 
marine the success of which is predicated upon oil; we create an enor¬ 
mous industry based upon the internal-combustion engine, whose only 
fuel is petroleum in some form; and yet as a nation we have in the past 
utterly refused to cooperate with our oil companies to the end that they 
might acquire reserves of petroleum throughout the world wherewith 
to perpetuate the success of our constructive genius. -— 1 

Those who have known our needs over a long period have for years 
been compelled to sit idly by and witness the neglect of the nation’s 
welfare as related to our future requirements for petroleum. Is this 
because of the anathema placed upon the words Standard Oil? Is it 
because our representatives in Washington fear to approve constructive 
legislation relating to petroleum lest they be branded as Standard Oil 
henchmen? How absurd such an attitude in view of present-day 
conditions! And how detrimental to the best interests of millions of 
our people who use some kind of motor-driven vehicle or who have 
machinery to lubricate! 


12 






It is true that in the past we thought of petroleum in terms of 
Standard Oil, and quite correctly. At the time of the suit which resulted 
* i Q separating the Standard Oil Company into individual units, the com¬ 
pany controlled something over eighty-five per cent of the petroleum 
industry of the United States. Some of us forget, however, that the 
old order has vanished and that the once well-nigh-complete monopoly 
now T , in the sum of its thirty-three dismembered units, controls less 
than fifty per cent of the country’s refining capacity, a much less quantity 
of the production of crude oil, and that, because of the rise of numerous 
smaller companies, the producers of oil are no longer forced to sell to 
the one concern which for years dominated absolutely the petroleum 
industry, but have on the contrary a keenly competitive market in 
which to sell their wares, a market regulated by the law of supply and 
demand. 

The years subsequent to the dissolution of Standard Oil are the > 
most important in the history of the petroleum industry; from an output 
of but 220,000,000 barrels of crude in 1911, our output has risen to 
378,000,000 barrels in 1919, to say nothing of imports from Mexico of 
something over 53,000,000 barrels, or a total of 431,000,000 barrels. 
This same period saw the rise of a number of new companies and wit¬ 
nessed the installation of that great revolutionary innovation called the 
cracking process, for the manufacture of cracked gasoline, without 
which we should to-day be unable to meet current demands. 

Whatever pessimism there may be as to our present reserves is due } 
largely to the fault of our Government in failing years ago to adopt a 
really constructive policy as to acquisition by American nationals of 
foreign sources of petroleum supply. Mexico has been an example of 
this neglect; and yet, in spite of the obstacles interposed, American 
enterprise continued to produce and ship oil even during the most 
acute period of wartime tension. Our citizens, without arms and without 
protection, faced the Mexicans, and as a patriotic effort and under the 
urge of government request hung on and produced the oil without which 
our ability to keep the Allies supplied would have been seriously em¬ 
barrassed. 

Because of failure on the part of the Government in the past to 
understand the vital necessity for constructive planning and action 
years in advance of the event, we face a predicament for which there is 
little or no excuse. Perhaps it is too much to expect under a gover- 
ment such as ours that the party in power, be it Republican or Demo¬ 
cratic, shall put aside discussion of pressing immediate business for 
consideration of events which culminate years in the future. There is 
no better illustration of this, however, than the dictum of Roosevelt, 


13 




that “The nation must get out of the business of politics and into the 
business of government.” Whether the Administration be Republican 
or Democratic matters not at all; the national welfare is paramount to 
any consideration of party politics. 

The government obligation as to petroleum exists; the situation is 
such as to admit of no political experiments or expedients; conditions 
must be met and dealt with as any great corporation would deal with 
a problem that struck at the very foundation stones upon which its 
prosperity rested. 


.. 


Our Dwindling Oil Reserves 

Service is the supreme justification for corporate existence, and it 
is this service that the petroleum industry is attempting to furnish. 

It can do this only through governmental cooperation. Just to the 
extent that the industry is prevented from rendering that service, 
possible only through harmonious cooperation, just to that extent will 
the price of gasoline for the farmer’s flivver and tractor or for lubricants 
and fuel oil for the Army, the Navy, the merchant marine, and all 
industry, be high and the commodity itself difficult to procure. 

The desirability for some constructive governmental action was 
first officially called to the attention of Congress by the report of the 
United States Geological Survey in 1908, at which time there was made 
public the first inventory of our petroleum resources. This was the 
result of an examination of the geological structure of the United States 
■with special reference to the petroleum-bearing sedimentaries, their 
areas and probable oil content. It is of course only an estimate and 
may be wide of the mark, but it points the way to a national policy that 
should be followed. In this work the Geological Survey made use of 
many data already in possession of oil-producing companies, and was 
thus able to review a considerable period of past production, reduce 
that to barrels an acre, and apply these known factors to the deter¬ 
mination of probable future area and acre yield. The result of this"] 
survey was an estimate of 11,800,000,000 barrels as the total petroleum 1 
content of United States territory, of which quantity 1,800,000,000 had j 
already been extracted. This inventory was revised in 1916 in the light 
of historical and additional data made available during the interim, 
and it is startling to note that, rather than an increase as compared 
with 1908, the quantity was reduced 600,000,000 barrels; while in the 
meantime consumption had drawn an additional 1,800,000,000 barrels. 
Again in 1919 the survey was checked, with the result that 1916’s 
figures were raised 100,000,000 barrels but the total was still 500,000,000 
barrels less than the 1908 estimate. We had consumed in the interim 
an additional 1,000,000,000 barrels. 


14 




In tabular form the three estimates show as follows: 


1908 

Original Quantity 
Available 

Total Quantity 
Extracted 

Remaining to 
be Produced 

Barrels 

1916 

11,800,000,000 

1,800,000,000 

10,000,000,000 

Barrels 

1919 

11,200,000,000 

3,600,000,000 

7,600,000,000 

Barrels 

11,300,000,000 

4,600,000,000 

6,700,000,000 


As already stated these figures may or may not be accurate; that 
is entirely beside the point. Increase them four times, and from a 
national standpoint they would still be inadequate in the light of the 
rapidity with which our requirements are increasing and will continue 
to increase. Noting these future requirements, there is but one policy 
to pursue: The encouragement and assistance of petroleum companies 
by the Government in their search for additional reserves throughout 
the world. 

We are already fairly well fortified in Mexico, Central America 
and South America, but there is yet much to do. So long as there is 
one known spot upon the globe that is suspected of containing oil we 
should not be satisfied until we have a strategical position in that spot 
or a position elsewhere to compensate. 

The Great American Fields 

To the query, Where are the oil fields of the United States located 
and what has been their production? there is no more authentic answer 
than the following table compiled from United States Geological Survey 
records, showing the known oil fields of the United States, with an 
estimate of their original content, present production and relative 
importance: 



Original 

Content 

Used up to 
1920 

Production 
in 1919 

Percentage 
of Total U. S. 
Production 
(1919) 

Appalachian. 

.1,772* 

1,251* 

29* 

7.78 

Lima-Indiana. . . . 

. 489 

452 

3 

0.92 

Illinois. 

. 474 

311 

12 

3.30 

Oklahoma-Kansas. 2,716 

1,107 

115 

30.60 

North Texas. 

. 479 

146 

67 

17.84 

North Louisiana. 

.. 191 

104 

13 

3.60 

Gulf Coast. 

.1,054 

324 

20 

5.44 

Rocky Mountain, 

.. 440 

53 

13 

3.62 

California. 

.3,364 

1,215 

101 

26.90 

Totals. 

.10,979 

4,963 

373 

100.00 


♦Quantity in millions of barrels of forty-two gallons; 000,000 omitted. 


15 














Supplementing the foregoing table it will be of interest to note the 
year of maximum production in each of these fields as showing possi¬ 
bility of increased output for the future. 

The Appalachian field, the scene of the first production of oil in 
the United States, reached the zenith of its productivity in 1891, with 
an output of 35,000,000 barrels, and has declined steadily since, reaching 
a low point of 22,000,000 barrels in 1915. Its recent increase is due to 
flooding with water to drive out the remaining oil and to an increase 
in price making possible the extraction of oil that would otherwise be 
unprofitable. It is useless to hope for any greatly increased output 
from this source. It is true of this field as it is of all others that high 
prices will stimulate the production of oil which would remain in the 
ground at prices ruling prior to the war; every ten cents a barrel rise 
in price will undoubtedly make available oil that otherwise could not 
profitably be produced, but the quantity in the aggregate will be in¬ 
significant as compared with the requirements of the nation. 

The Lima-Indiana field produced its maximum in 1904, with 
24,000,000 barrels. Its production since then has shown a steady 
decline. The peak production in the Illinois field was reached in 1908, 
with 36,000,000 barrels. 

The oil pools of Oklahoma-Kansas reached their climax in 1918, 
with a production registering 149,000,000 barrels. In 1919 the output 
of this important field dropped to 115,000,000 barrels—a sharp and 
startling decline, though an increase is not unlikely at any time. 

The decline in the Oklahoma-Kansas field was offset in 1919 by 
the rapid development of Central and North Texas, whose pools jumped 
from a production of 17,000,000 barrels in 1918 to an output of 67,000,- 
000 barrels in 1919; but the production of these pools reached their 
apex in the middle of 1919 and has been steadily declining ever since. 

The Northern Louisiana field came into prominence in late 1919, 
but attained an output of only 13,000,000 barrels in that year. 

The deposits of heavy asphaltic petroleum in the coastal portions 
of Texas and Louisiana, comprising the so-called Gulf field, reached a 
high point of 36,000,000 barrels in 1905; and though many new localities 
are constantly being brought into production the output in 1919 had 
fallen to 20,000,000 barrels. 

The Rocky Mountain field, centering in Wyoming, has its life 
largely ahead of it, and has to date produced 53,000,000 barrels. In 


16 


this field is included much of the public oil-bearing lands which have 
been recently opened to private development under the oil-leasing bill. 

California has just reached the highwater mark with an output of 
101,000,000 barrels in 1919. It will probably exceed this figure, but 
notwithstanding this enormous production this state has been drawing 
on stored supplies since 1914 and has reduced the oil in storage from 
58,000,000 to approximately 25,000,000 barrels; it is now drawing from 
storage almost 1,000,000 barrels a month. The future holds promise of 
production in excess of that now being secured, while on the other hand 
the demand requires a considerably greater quantity, especially in the 
form of gasoline, which would find ready export if additional supplies 
were available. 

Though petroleum is produced in minor quantities in a number of 
other localities, there are no other fields of special importance now 
developed in the United States holding any prospect of materially 
changing the situation. It is possible, of course, that any day another 
Cushing Pool may be struck, just as the Burkburnett Pool was developed 
in 1918. We may even have periods of overproduction of short dura¬ 
tion, but the general tendency will be an increasing acuteness of short¬ 
age. In the light of past events any attempt to prognosticate with 
any degree of exactness the rise and decline of production is not likely 
to be crowned with success except over a long period. 


Production Year by Year 

Of all the oil-producing states California has been the most prolific 
in production per acre, its wells the longest lived, and its future pro¬ 
duction most likely to be of long duration. But California cannot to-day 
supply the demands of the Pacific Coast and adjacent territory. Its 
products would therefore reach the great centers of population only 
in case of higher prices, and to the detriment of local consumers on the 
Pacific Coast. As a source of future supply to offset declines in the 
Eastern fields, California cannot be counted upon; it is as though Cali¬ 
fornia were a separate country, so far as the requirements of the Eastern 
United States are concerned. 

The Oklahoma-Kansas field is at the present time the most prolific 
source of petroleum in this country, but it is carrying a burden that 
should be distributed over newly discovered fields, the hope of finding 
which springs eternal in the breast of the optimistic prospector, to whose 
venturesome spirit is largely to be credited the discovery of our oil 
fields; just when and where and how large, no man may say. 


17 



The tabulated production for the past few years for the most 
important fields stands as follows: 


OUTPUT OF PRINCIPAL OIL FIELDS OF THE UNITED STATES 
(In barrels of forty-two gallons) 


Appalachian 

1914— 24,000,000 

1915— 22,000,000 

1916— 23,000,000 

1917— 24,000,000 

1918— 25,000,000 

1919— 29,000,000 


Midcontinent 

76,000,000 

101,000,000 

116,000,000 

144,000,000 

149,000,000 

115,000,000 


Gulf 

13,000,000 

20 , 000,000 

21 , 000,000 

24,000,000 

24,000,000 

20,000,000 


California 

99,000,000 

86,000,000 

90,000,000 

93,000,000 

97,000,000 

101,000,000 


The most recent publication bearing upon the petroleum reserves 
of the United States is a paper by David White, of the United States 
Geological Survey, entitled The Petroleum Resources of the World. 
He states: “On the basis of 6,740,000,000 barrels available in January, 
1919, there should now remain—February, 1920—in round numbers 

6,325,000,000.Oil is now being taken out of the ground at a rate 

very closely approximating 400,000,000 barrels per annum. This is 

five times the rate in 1901 and twice that of 1909.All the oil that 

has been mined in the United States in sixty years would be taken out 
in thirteen at the present rate of production.” 


Assuming for the sake of this presentation that the figures presented 
by Mr. White are correct, our oil reserves will last from seventeen to 
twenty-three years provided the rate of consumption does not increase. 
The question of the accuracy of these figures is quite immaterial. 
Double or quadruple the estimate, and the situation is still unsatis¬ 
factory. Oil enough for forty or eighty years at our present rate of 
consumption is but a meager pittance when measured by our life as a 
nation, and calls for the wisest exercise of statesmanship in meeting 
the issue. 

But this forecast, pessimistic as it is, does not present the true 
picture, for the reason that the figures are based on the false assumption 
that the output will remain stationary at, say, 400,000,000 barrels per 
annum, while a careful analysis of production figures—made by the Oil 
Division of the United States Fuel Administration—shows that the 
annual increase in production is 8.54 per cent of each preceding year. 
Over the life of the industry the figures of production and consumption 
may be taken as identical, so that our annual consumption may be said 
to have increased at the rate of 8.54 per cent of the previous year; in 
other words, we face compound interest. Apply this figure to the 
future and we have a total requirement in 1930 of well over 900,000,000 


18 





barrels per annum, a quantity which the oil territory of the United 
States is probably incapable of supplying. 


Automotive Needs 


An interesting check on this figure is an estimate by a prominent 
member of the automobile industry who states that within fifteen years 
there will be required 250,000,000 barrels of gasoline annually to meet 
the demands of the automotive industry alone, to say nothing of the 
requirements of other industries. 

Assuming a fifty per cent conversion of crude oil into gasoline, we 
shall require 500,000,000 barrels of oil; and if we assume the present 
ratio of something over twenty per cent we shall require more than 
1,200,000,000 barrels to supply gasoline for this one industry alone. 
Of course the technology of refining must improve, and present practice 
will in all probability be largely revolutionized, with consequent re¬ 
covery of more gasoline, the product most acutely in demand. 

It is well to consider in barrels of crude production the increase 
over the decades since 1870; it will serve to show the rapid and continu¬ 
ous growth of consumption and give a glimpse of what the future is 
likely to demand. It has already been shown that over the life of the 
industry the annual increase has averaged 8.54 per cent and it is in 
order to state that this figure has been remarkably constant. Reduced 
to actual figures, the increase in production shows as follows: 


1870 

1880 

1890 

1900 

1910 

1919 


Bbls. of 42 Gallons 

. 5,200,000 

. 26,300,000 
. 45,800,000 
. 63,600,000 
.209,500,000 
.375,700,000 


In the production of this oil it has been necessary year by year to 
develop new fields, and in doing this the center of production has moved 
farther and farther West, and drilling has been deeper and deeper, with 
constantly mounting costs for both drilling and production, until to-day 
the wells of Texas are on the average more than 3000 feet deep and are 
costing round $50,000 or more to complete, as compared with wells of 
1000 feet or less a few years ago which cost perhaps $3000 to $5000. 

The enormous increase in production has brought with it two 
problems: One, the drilling of new wells to offset the decline of wells 
already drilled; the other, drilling new wells to meet increase in con¬ 
sumption over the previous year. In order to understand the vital 


19 








importance of the first contingency it will be necessary to consider 
the rate of decline in production of oil wells. This varies with the 
different localities, being least in California and greatest in the new 
Ranger district in Texas. An average of several hundred wells in 
California showed that thirty per cent of the production was exhausted 
in the first year, fifty per cent by the end of the second year, seventy-five 
per cent by the fifth year, and ninety per cent by the tenth year, with 
the remaining ten per cent over perhaps twenty to thirty years or 
longer. The Ranger field shows for some 240 w^ells a total life of only 
eight months to the well. These are the two extremes, with the vast 
majority of the production of the United States in between. 

These facts illustrate graphically the necessity for drilling new wells 
to offset this decline. It has been estimated that it is necessary to 
produce at present not less than 30,000,000 barrels of new oil annually 
for this purpose, and some authorities very greatly increase this amount. 
If we add to this another 30,000,000 to meet the normal present rate of 
increase in consumption, we have a grand total of 60,000,000 barrels 
of new production annually necessary to care for these two items, a 
quantity almost equal to our total production in 1900. In that year 
the new production necessary to be found did not probably exceed 
12,000,000 barrels, or one-fifth of the quantity of new annual production 
now required. 


Oil From Mexico 


It is important to note also that the decline curve of our oil w T ells 
means that after we have attained our maximum production, whatever 
it may be, we shall for many years gradually decrease our production; 
rapidly at first, then slower and slower as the years go by* Wells 
drilled forty and fifty years ago in Pennsylvania are still producing oil, 
but in insignificant quantity—a quarter of a barrel or less per day. 
The United States in perhaps a hundred years hence will be producing 
some oil from oil wells, but in quantities so small as to be negligible. 

The problem of the future may in some measure be visualized by 
consideration of the foregoing figures, taken in connection with the 
tremendous increase in demand for fuel oil; an increase in demand 
entirely unprecedented by anything in the past. The program of the 
shipping board, including ships retained and sold, contemplates an 
annual consumption of not less than 60,000,000 barrels within two 
years, of which 40,000,000 are now being consumed. This increased 
demand for fuel oil is new, is entirely separate and apart from the de¬ 
mand for gasoline, and can be met only by importation of large quantities 
of oil from Mexico. 




f 


20 


In view of the geographic position of the Mexican oil fields, their 
proximity to tidewater, pipe lines and other transportation facilities 
already available for the movement of large quantities of Mexican oil, 
and in view of the character of Mexican oil as compared with that of the 
United States, there is little possibility of successfully meeting the 
demand for fuel oil except by drawing very largely upon Mexico. That 
the Mexican petroleum production has met an economic want can best 
be demonstrated by quoting figures of production in Mexico, beginning 
in 1901: 

Bbls. of 42 Gallons 


1901. 10,345 

1905. 251,250 

1910. 3,634,000 

1915.32,910,000 

1918 .63,824,000 

1919 .92,402,000 


The total imports into the United States of crude oil and petroleum 
products, practically all from Mexico, for the last few months have 
been as follows: 

1919 

October. . 

November 
December. 

1920 
January. . 

February. 

March.... 

April. 


Bbls. of 42 Gallons 

.. .5,860,000 
. .4,930,000 
. .4,330,000 

. . 6,280,000 
. .4,930,000 
. .6,500,000 
,. .6,402,000 


The demand for Mexican oil is limited only by the transportation 
facilities available. Ships have been the controlling factor, but, even 
so, coftditions in Mexico have been such as to discourage the large 
investments necessary in pipe lines, storage and loading facilities. It 
has been estimated that the demand is such that an amount equal to 
100 per cent increase in production could be marketed this year provided 
transportation facilities were available and the drilling program had not 
been interfered with by the Mexican Government. 

The gravity of this Mexican oil is lower than the oil of the United 
States and it does not contain so great a quantity of gasoline and other 
light products. It is topped for gasoline, which is sold largely in the 


21 















United States, and the residuum is sold for fuel oil principally. It is 
this latter product that is of such vital interest to the United States 
at the present time. 

The position of Mexico is unique in that the production to the well 
far exceeds anything known in this country. 


Wells of 5000, 10,000 and even 20,000 barrels a day have been 
drilled and are still producing, and wells with a production greatly in 
excess of this have been brought in occasionally. Compared with this, 
the average production of about four barrels a well a day in the United 
States seems insignificant. 


The encroachment of water in some of these Mexican wells has 
seriously affected production and has put the American oil industry 
on notice that it must seek oil in other localities as well as in Mexico if 
it is adequately to serve the future needs of American consumers. Mexico 
will yet produce enormous quantities of oil, but again assuming this 
production to continue forty or fifty years or even longer the period is 
insignificant as compared with the life of this nation. 


The Domestic Situation 

Unfortunately, owing to political conditions in Mexico, it has not 
been possible during the past several years to calculate with any degree 
of certainty the output of oil from that source. Demands upon the 
part of the Carranza government that American oil companies surren¬ 
der their old titles and take new ones under Article Twenty-seven of 
their constitution caused endless confusion and delay. Quite rightly 
the American companies refused to surrender their titles, and as a 
consequence drilling permits were refused to practically all the impor¬ 
tant petroleum companies. This difficulty was finally overcome by the 
Mexican Government’s issuing temporary permits that made it possible 
for the companies to drill without surrender of the original titles held 
by them. 

Practically all the incease in the consumption of fuel oil must in the 
immediate future be supplied from Mexican crude, and it is therefore 
of paramount importance that an understanding be had with Mexico 
at as early a moment as possible, assuring the continuity of this supply. 

In the discussion of the importance of Mexico as a source of supply 
it is necessary to consider several factors relating to our own domestic 
situation. 

By far the greater part of our domestic oil must be refined before 
being sold as fuel oil, and the fact must not be overlooked that our 


22 


domestic oil is, in most efficient practice, run to coke or cylinder stock, 
extracting all the by-products, and from this process there remains no 
fuel-oil residuum. 

It is merely a matter of time until much oil that under present 
practice would be sold for fuel-oil will be converted into gasoline or lubri¬ 
cants. We are to-day burning as fuel-oil products containing as much 
as twenty-five per cent of lubricating stocks for the want of which we 
shall, of course, suffer some day. 

At the present time stocks of oil above ground in the United States 
are decreasing and it is with difficulty that normal requirements are being 
met. Any attempt to add to the present heavy demands upon the 
petroleum industry by calling on it to supply from our domestic resources 
an additional quantity equivalent to any large portion of the oil now 
coming from Mexico would simply result in inability on the part of 
the industry to perform the service demanded. 


Rising Oil Prices 

There is ample oil in Mexico and in Central and South America. 
American companies have large holdings there and will produce tre¬ 
mendous quantities of oil provided the Government of the United 
States harmoniously cooperates and sees to it that American companies 
are accorded proper governmental protection in their foreign activities. 

The price of an article is always an indication of the adequacy of 
supply, and it is significant to note that the wartime base price of crude 
in the mid-Continent fields, of $2.25 a barrel, has been advanced from 
time to time until it now stands at $3.50; while the price of Pennsylvania 
crude has risen from $4 to $6.10. 

In view of the abnormal decline of the new Texas fields it is question¬ 
able whether the producing industry in that territory, upon which we 
have been relying for a large part of our future reserves, is making as 
a whole a profit commensurate with the risk, even with oil at the above 
figure; and if this is true additional price advances are inevitable. 

It must not be forgotten, however, that this picture may change 
overnight. Another Cushing or Midway-Sunset field, intensively 
drilled, might quite conceivably create a temporary oversupply. Even 
so, we must still plan for the future—not from the standpoint of any oil 
company but from the national standpoint where twenty or thirty 
years are of small moment. 


23 


The great strain upon our petroleum resources has come about 
since the development of the internal-combustion engine. Consider, for 
example, the increase in our output of gasoline, a petroleum product 
that but a few years ago was a drug on the market and was upon occa¬ 
sion burned by refiners in order to rid themselves of a byproduct entirely 
unmarketable. To-day the acute demand in petroleum products is for 
that same gasoline which a few years ago was treated as a nuisance. 
More than forty-five per cent of the entire value of manufactured 
petroleum products is represented by the gasoline fraction. The in¬ 
crease in this demand is shown by the following table of United States 
gasoline output: 

UNITED STATES PRODUCTION OF GASOLINE 
(In barrels of forty-two gallons) 


1910* . 

.15,000,000 

1915* . 

.42,000,000 

1911* . 

.20,000,000 

1916. 

.48,000,000 

1912* . 

.24,000,000 

1917. 

.62,000,000 

1913* . 

.30,000,000 

1918. 

.82,000,000 

1914. 

.36,000,000 

1919. 

.94,000,000 


In other words, in nine years we have increased our output of 
gasoline more than sixfold, and have about doubled it in the last three 
years. There was no diminution of output with cessation of hostilities; 
on the contrary the demand for 1919 was greater by 12,000,000 barrels 
than 1918. And there is no reason to doubt that this demand will not 
only be maintained but increased if the prognosticated demand for 
internal-combustion engines does not prove disappointing. 

We have long since passed the point where the crude oil of the 
United States will yield by ordinary old-line distillation methods 
sufficient gasoline to meet the demands and needs of the times. In 
order to make up this deficiency three sources of obtaining this supply 
have been made available: 

Casinghead gasoline, compressed from the oil-well gases, formerly 
a waste product but amounting to about 12,000,000 barrels in 1919; 
pressure distillation of certain grades of oils, making so-called cracked 
gasoline, amounting to about 14,000,000 barrels in 1919; and importation 
of gasoline, chiefly from Mexico, amounting to about 277,000 barrels 
in 1919. Of our 1919 total of 94,000,000 barrels of gasoline, therefore, 
28,000,000 barrels—or twenty-nine per cent plus—came from sources 
formerly entirely neglected; a clear saving of products heretofore 
allowed to go to waste for the reason that there was no market for them 
and therefore no incentive to invent methods for extracting and uti¬ 
lizing them. 

♦Estimated 


24 
















Oil From Shale 

The oil industry is primarily concerned with the manufacture of a 
few staples and numerous by-products. The staples are gasoline, 
kerosene, gas oil and fuel oil, lubricating oil, wax and asphaltum. The 
following table shows the quantity of each product in 1918 and 1919, with 
the value of the putput for 1918: 

PRODUCTION AND VALUE OF PETROLEUM PRODUCTS IN THE UNITED STATES 


PRODUCT Production Value Production 

(Bbls.) (Bbls.) 

Gasoline. 85,000,000 $684,000,000 95,000,000 

Kerosene. 44,000,000 136,000,000 56,000,000 

Gas and fuel oil. 175,000,000 385,000,000 182,000,000 

Lubricating oil. . . 20,000,000 152,000,000 21,000,000 

Wax. 1,500,000 44,000,000 1,900,000 

Asphaltum. 3,400,000 14,000,000 5,000,000 


Considering the past and the estimated future increase in demands 
for gasoline and the fact that kerosene is even now fast being utilized 
as a substitute for gasoline, especially in tractors, and keeping in mind 
the demand for lubricants, it follows that we must in the interests of 
national welfare keep our domestic stocks of petroleum for use in the 
form of these products, so far as possible, rather than for sale in the 
form of fuel oil. 

With the exception of some Gulf Coast oils and some California 
oils, the oils produced in the United States are of high gravity and 
particularly rich in the gasoline and kerosene fractions; they must be 
refined before being suitable for fuel-oil purposes. After the removal 
of the gasoline and kerosene they offer splendid inducement for further 
treatment for the manufacture of lubricants, cracked gasoline and wax. 

With growing realization of the increasing demand for crude 
petroleum in the United States greater interest is being displayed in the 
deposits of oil-shale in this country. In the past few years it has been 
definitely determined by geological investigations that thousands of 
square miles of the country are underlain by beds of bituminous shale 
capable of yielding oil when subjected to heat. The richest deposits of 
this character are found in the States of Colorado, Utah and Wyoming, 
where beds twenty-five to fifty feet in thickness have enormous areal 
extension. Much of this material is capable of yielding upon distillation 
between one-half and one barrel of oil, 3000 cubic feet of gas, and ten 
to seventeen pounds of ammonium sulphate to each ton of shale. 


25 






The oil-shale beds occur for the most part close to the surface and 
part of them may be reached by open-cut methods of mining. In the 
past year or so considerable activity has been directed toward the 
oil-shale areas of Colorado in particular, and there are now no less than 
forty legitimate companies and many additional stock-promoting 
concerns actively engaged in preliminary work looking to the exploitation 
of these deposits for oil. 

The Future of Shale Oil 

Shale as a source for oil is by no means new. Before the oil fields 
of the United States were developed there was a small industry in Penn¬ 
sylvania and West Virginia engaged in the manufacture of oil from 
shale, and this activity explains the origin of the term coal oil, which 
was applied to kerosene after the discovery of the oil fields of Penn¬ 
sylvania put an end to the early oil-shale industry and supplanted that 
product with the extraction of illuminating oil from petroleum. In 
Scotland the production of oil from shale has been carried on for the past 
seventy years with more or less profit, but since the recent development 
of oil fields in Egypt, Persia and India the refineries of the Scotch oil- 
shale regions are said to be running imported petroleum because the 
labor costs of mining shale have become prohibitive. 

American oil shales are now very much before the public as one of 
the possible sources from which to meet the increasing demands for 
petroleum products. Though the production of oil from shale will 
probably become important in this country in years to come, the develop¬ 
ment of a vast industry competent to make any significant impression 
on the tremendous demands for oil must of necessity be of slow growth. 
Methods of extracting oil from shale on a profitable commercial scale 
are yet to be thoroughly established. 

It must be remembered also that the production of oil from shale 
involves not only the development of a refining industry and the up¬ 
growth of suitable transportation equipment, but it necessitates the 
establishment of a mining industry of enormous proportions. To replace 
the petroleum now" obtained from the oil fields of the country with oil 
manufactured from shale would require a mining activity comparable 
in size to the coal-mining industry. In view" of the fact that hundreds 
of thousands of men would be needed as labor alone, it would seem that 
in a country faced by a dearth of unskilled labor such a development 
must be a matter of years. On the whole, it may be said that the 
solution of the petroleum problem lies in other directions. 

From an economic standpoint there are no substitutes in sight 
available in sufficient quantity to replace gasoline, so enormous is the 
demand for this product of petroleum. There are plenty of chemical 


26 


compounds, of course, capable of yielding good service in the internal- 
combustion engine, but the limiting factor in all these is the inability 
to gain a supply sufficient in quantity and low enough in price to meet 
the requirements of automotive transportation. Considerable attention 
has been devoted of late to the possibilities of benzol and alcohol, and 
various mixtures of these substances with other products have come to 
the market as alternate motor fuels. The present production and 
prospective output of all such materials are extremely limited when the 
stupendous requirements of the automotive industry are taken into 
account. Both benzol and alcohol are interesting minor additions to our 
supply of motor fuel but they cannot be counted upon in sufficient 
quantities to be highly significant. 

The production of benzol is limited by the quantity of coke manu¬ 
factured in the by-product coke oven, which in turn is bounded by the 
requirements of the iron and steel industry, the chief user of coke. At 
the present time the output of benzol in the United States is only about 
1,200,000 barrels per annum, with the chance that this quantity may be 
doubled in the course of the next few years. 

Power alcohol has interesting possibilities, but this substitute also is 
limited in present output and its production can be increased but slowly. 
It has an especial appeal, however, because of the fact that it can 
be manufactured from vegetable products which reproduce themselves 
from year to year, and in consequence makes no drain upon a resource 
fixed in quantity. The present output of alcohol in the United States, 
however, is only about 1,200,000 barrels a year, and a widespread devel¬ 
opment of new industrial activity must intervene before this quantity 
can be very significantly increased. Though many statements have 
come into prominence to the effect that the output of alcohol ultimately 
attainable in a country such as the United States has no practical limits, 
the fact must be faced that there is no definite assurance that a highly 
important production of alcohol could be attained without making 
serious inroads upon products otherwise useful as human food and cattle 
feed. Undoubtedly a slow advance can be made toward enlarging the 
output of alcohol from the waste products of our farms, cities and 
industries, and all efforts in this direction should meet with full en¬ 
couragement; but again the rapid increase in demand far outstrips the 
probable rate of increase from this source, leaving gasoline still as the 
only adequate answer. 

On the whole, it would appear that both benzol and alcohol, though 
interesting as small contribubutors to our fuel supply, have serious 
economic limitations that render them unavailable for outstanding 
assistance. The chances are that all the available benzol and alcohol 
not requisitioned by other requirements will continue to be gathered 


27 



and worked into the country’s general supply of motor fuel, augmenting 
this to the extent of two or three per cent, but not materially changing 
the character of the situation. 

The Board of Trade Bill 

All this leads up to the question of what constructive measures 
Congress should pass to meet the condition as it exists. It is entirely 
obvious that Congress itself cannot legislate with sufficient promptitude 
to meet the constantly changing requirements of the oil industry. The 
history of the Leasing Bill sufficiently and graphically illustrates this 
point; it is almost ten years since this measure was introduced in Con¬ 
gress, and it is only within the last few months that it was passed and 
signed. 

If we are to deal adequately with the problem of raw materials, 
including petroleum—the most vital of all—new methods must be 
found, and these methods must be based upon cooperation, not antago¬ 
nism, between Government and industry. The Oil Division of the 
United States Fuel Administration prepared a bill to meet the condition, 
but this measure was never introduced because of the obvious absorp¬ 
tion of Congress in other matters; it is entitled An Act to Create a 
United States Board of Trade, to Define Its Powers and Duties, and 
for Other Purposes. Paragraphs three and four are the significant 
features of this suggested legislation: 

“Section 3. Upon application of any person engaged in trade, the 
Board shall issue a license in such form and under such regulations as 
the Board may prescribe. As a condition of the issuance of such 
license the person applying therefor shall agree to comply with all 
regulations, orders, and directions of the Board with respect to the 
conduct of business by the licensee. The Board shall exercise general 
supervision over the business of all licensees, and shall issue such regu¬ 
lations, orders, and directions as may be necessary and proper to pro¬ 
mote the national welfare. Upon the failure or refusal of any licensee 
to comply with all regulations, orders, or directions of the Board, the 
Board may suspend or revoke the license of such licensee. Any licensee 
may at any time surrender his license. 

“Section 4. No action or agreement of any licensee shall be held 
to be in violation of any of the provisions of the business laws of the 
United States when such action or agreement has been taken or made 
in pursuance of any regulation, order, or direction of the Board. After 
the surrender or revocation of any license, the acts or agreements of 
such licensee which shall be taken or made thereafter, or which shall 


28 


continue in force thereafter, shall be subject to all the provisions of 
said business laws to the same extent as if no license had ever been 
issued.” 

We must face facts frankly. Complex modern civilization con¬ 
stantly encounters and creates new and serious problems. National 
contentment is synonymous with a healthy and harmonious industrial 
life, and the prompt execution of such constructive acts as will promote 
this is of the highest national importance. The so-called antitrust laws, 
including the Sherman Law and the Clayton Act, were proved during 
the war inadequate to control while at the same time permitting that 
cooperative effort necessary to the nation’s progress. The old theory 
of unrestricted competition is recognized by most as having caused the 
evils that the Sherman Law attempted to correct. 

The doctrine of the survival of the fittest has been proved unac¬ 
ceptable in industrial practice, and attempts are being made to substi¬ 
tute rational cooperative effort. This is impossible without government 
support. The proposed United States Board of Trade may be the 
machinery through which this support can be given. Under the super¬ 
vision of that board all actions would be tested by the formula: “Is the 
proposal in the interests of national welfare?” 

Government Aid Needed 

A precedent for such a method is found in the Shipping Act— 
Act of September 7, 1916—which submits to the shipping board all 
agreements between common carriers by water, including those “con¬ 
trolling, regulating, preventing, or destroying competition; pooling or 

apportioning earnings, losses, or traffic;.or in any manner providing 

for an exclusive, preferential, or cooperative working arrangement,” 
and authorizes that board to disapprove, cancel or modify any such 
agreement, and then provides that every such agreement shall be 
excepted from the provisions of the anti-trust laws. 

The so-called Board of Trade Bill above-mentioned will, it is 
believed, afford adequate machinery for the carrying out of the proposal; 
it at least has the merit of in no way altering existing antitrust laws; 
it simply affords means whereby corporations may in cooperation with 
the Government be licensed to do certain things now prohibited, so 
long as their activities are satisfactory to the Government. So long as 
they desire to remain under the protection of a Federal license they are 
immune from antitrust laws; should they elect to surrender their license, 
or if the license is canceled, they again become amenable to all existing 
laws. 


29 



It is futile on the part of Congress to shut eyes to plain economic 
laws and conditions in the hope that responsibility for meeting the situ¬ 
ation may be shifted elsewhere or be corrected by some miracle. Past 
events often foretell the future with unerring accuracy, and if we heed 
the happenings of the past we shall without a moment’s delay plan 
those constructive acts without which satisfactory solution of this 
problem is impossible. 

The rapid increase in demand for petroleum has created a problem 
that calls for the closest and most harmonious cooperation—Govern¬ 
ment can no more solve it than can the petroleum industry. Attempts 
at government ownership and operation would end in dismal failure 
and would precipitate a crises that might well shake the industrial 
foundations of the nation. The problem is not one with which we 
can temporize or experiment. The nation needs and must have the 
products of petroleum. These products exist in ample quantity through¬ 
out the world. 

The American petroleum industry asks no special privileges; it has 
the talent and ability to compete with the nationals of any country, 
but it does ask the aid of its Government in protecting and assisting 
it in its search for petroleum in foreign lands. 



30 



ft 


The Petroleum Problem of the 

World 


An Effort to Formulate One Essential of a Lasting Peace 

I N THE Congressional Record of May 17, 1920, there was published 
a message from the President of the United States transmitting 
to the Senate a report from the Department of State in reply to 
Senate Resolution 331, of March 19, 1920, which resolution requested, 
if not incompatible with the public interests, information: 

“First, as to what restrictions, if any, are imposed either directly 
or indirectly by France, Great Britain, Holland, Japan, or any other 
foreign country, or the dependencies thereof, upon the citizens of the 
United States in the matter of prospecting for petroleum, or in the 
acquisition and development of lands containing the same within the 
territory subject to the jurisdiction and influence of such countries. 

“Second, if such restrictions exist, what steps have been taken by 
the Government of the United States to secure their removal and 
equality of treatment in respect of citizens of the United States. 

“Third, if any restrictions are imposed by the Government of Mexico 
upon citizens of the United States in regard to the acquisition or 
development of petroleum-bearing lands within its jurisdiction which 
are not imposed upon nationals of other foreign countries. 

“Fourth, if any such discriminating restrictions are imposed by the 
Government of Mexico upon citizens of the United States, what steps 
have been taken by the Government to secure removal of such restric¬ 
tions and equality of treatment in respect of citizens of the United 
States.” 

The passage of this resolution by the Senate indicates that nationally 
we have at last wakened to the vital need for discussion by Congress of 
our petroleum problem. The question at the moment is not so much 
where our supplies are to come from, but rather what is the policy of 
other countries as compared with our own policy of equal opportunity 
for all, under which foreigners are accorded practically the same rights 
as our own nationals. 


si 



Foreign Restrictions Upon Aliens 

No better example of this liberality can be instanced than the 
activities of the Royal Dutch Shell Company in gathering oil production 
in United States oil fields, laying pipe lines, building refineries and 
marketing the resultant products upon an equality with American 
companies. In fact the Royal Dutch Shell—the great foreign combine 
controlled by English and Dutch capital—has received from our Govern¬ 
ment treatment more favorable than that accorded the Standard Oil 
interests, in that their operations have not been attacked or their activ¬ 
ities limited. The Royal Dutch Shell, in association with the Anglo- 
Persian, is to-day the great petroleum corporation of the world. In the 
sum of its more than one hundred and twenty-five subsidiary companies 
its activities reach every corner of the globe. 

During the war the British Government acquired a very large 
holding in the shares of the Royal Dutch Shell—as much as forty per 
cent, it was stated. The present whereabouts of these shares is some¬ 
what of a mystery, though it is reported that the British Government, 
through the Anglo-Persian Company, of which it owns the controlling 
interest, has arrived at an agreement with the Royal Dutch Shell of such 
character as to bring both companies into close association and co¬ 
operation; in other words, two of the greatest oil companies of the 
world have as a partner the British Government, with all the tremendous 
influence and power the British Government exercises throughout the 
world. 

It will therefore be instructive—in the light of our own liberal 
treatment of foreign corporations engaged in the oil industry in the 
United States—to know what conditions confront American oil com¬ 
panies in their attempts to acquire and develop sources of supply in 
various foreign countries. Ours has been a policy of equality, regardless 
of nationality. In contrast wfith this policy, it will be interesting to 
review briefly the report made by the State Department concerning 
the treatment accorded our nationals in foreign lands. Space forbids 
quoting the entire document, but it may be briefly summarized as follows. 

The report of the Department of State deals first w r ith France, and 
makes in part the following presentation: 

“There is reason to believe that the policy mentioned above would 
find expression in a restriction on development by aliens, at least to the 
extent that concessions would not be granted to alien groups unless 
they form a part of a French joint-stock company of which two-thirds 
of the directors should be French citizens. This policy would probably 
be effective in Algeria, French West Africa and Madagascar, should 
petroleum be found in these dependencies.” 


32 


Regarding the British Empire the report states in part as follows: 

In general, each dominion and colony has its own legislation on 
the subject of the petroleum industry. 

The policy of the British Empire is reported to be to bring about 
the exclusion of aliens from the control of the petroleum supplies of the 
empire and to endeavor to secure some measure of control over oil 
properties in foreign countries. This policy appears to be developing 
along the following lines, which are directly or indirectly restrictive on 
citizens of the United States: 

“1. By debarring foreigners and foreign nationals from owning 
or operating oil producing properties in the British Isles, colonies and 
protectorates. 

“2. By direct participation in ownership and control of petroleum 
companies. 

“3. By arrangements to prevent British oil companies from selling 
their properties to foreign owned or controlled companies. 

“4. By orders in council that prohibit the transfer of shares to 
other than British subjects or nationals.” 

The State Department report deals also with Australia, British 
East Africa, Uganda, German East Africa—occupied—British West 
Africa, British Guiana, Burma, India and Trinidad; all of these countries 
having rules and regulations directly and emphatically detrimental to 
nationals of the United States, making it as a matter of fact impossible 
for our nationals to operate successfully in those countries. 

---. i 

American Prospectors Barred Out 

“In the Dutch East Indies prospecting licenses and concessions are 
granted only to Dutch subjects. American companies have for years 
without success endeavored to secure leases in this field. The Royal i 
Dutch Shell Company has a complete economic monopoly of production. 

“In Japan foreigners would seem to be restricted in the development 
of petroleum properties by Article 5 of the Japanese mining law, pro¬ 
mulgated by Imperial order on the seventh of March, 1905, reading 
as follows: 

“ ‘No persons other than subjects of the Empire or juridical persons 
duly formed in accordance with the laws thereof are entitled to acquire 
mining rights.’ 

“The meaning of ‘juridical persons’ in the Japanese law is such that 
it is believed to be practically impossible for foreign companies to retain 
or transfer undisputed possession of mining rights in Japan.” 


33 





The countries of Central America and South America show an 
increasing tendency to make exploitation by foreign nationals more and 
more difficult. 

Replying to the second paragraph of the Senate resolution, the State 
Department makes in part the following answer: 

“With reference to steps taken by this government looking to the 
removal of restrictions operating directly or indirectly on citizens of the 
United States as mentioned in the second paragraph of Senate Resolu¬ 
tion 331, it should be noted that in general the restrictions set forth are 
so drawn as to distinguish between aliens and nationals. This distinction 
causes the discrimination, if any, to fall on aliens generally, thus only 
operating indirectly on citizens of the United States. In the absence 
of prohibitory treaty provisions, this form of discrimination would 
seem to be justifiable from the viewpoint of international law, however 
impolitic it might be as regards reciprocity and international comity.” 

It w T ould seem the part of wisdom that the United States negotiate 
at once treaty provisions giving our nationals the same freedom that 
foreign nationals enjoy in America. 

The State Department’s reply to the third paragraph of Senate 
Resolution 331 seems to cover the fourth paragraph of the resolution 
also, and is therefore quoted in full: 

“In reference to the information requested in the third and fourth 
paragraphs of Senate resolution above mentioned, the Department of 
State is not advised that the Government of Mexico has imposed 
express restrictions upon citizens of the United States in regard to the 
acquisition and development of petroleum-bearing lands in Mexico 
which are not imposed upon the nationals of other foreign countries. 

“It should be noted that the holdings of American interests in 
Mexico are so extensive that general restrictions applicable to foreigners 
fall most heavily on American interests. 

“The alleged nationalization of petroleum by the separation of sub¬ 
soil from surface rights, and the governmental reservation of the former, 
may have been effected by Article 27 of the new Mexican Constitution 
of 1917. There appears to have been no judicial interpretation on the 
construction of Article 27. It may be that some relief may be expected 
from a judicial construction of the conflict which appears to exist between 
Article 27 and Article 14, which states that no law shall be given retro¬ 
active effect to the prejudice of any person. On February 19, 1918, the 
Mexican executive, under authority of a congressional resolution of 
May 8, 1917, conferring upon him extraordinary powers in the depart¬ 
ment of finance, issued the first of a series of decrees, which seems to have 


34 


been the first step in enforcing Article 27. To this decree diplomatic 
protests were made by this Government, Great Britain and France. 
The position of this Government in regard to this apparently radical 
legislation is set forth in the following from Ambassador Fletcher’s note 
of April 2, 1918, to the Mexican Government: 

“ ‘While the United States Government is not disposed to request 
for its citizens exemption from the payment of their ordinary and just 
share of the burdens of taxation, so long as the tax is uniform and not 
discriminatory in its operation and can fairly be considered a tax and 
not a confiscation or unfair imposition, and while the United States 
Government is not inclined to interpose in behalf of its citizens in case of 
expropriation of private property for sound reasons of public welfare 
and upon just compensation and by legal proceedings before tribunals, 
allowing fair and equal opportunity to be heard and giving due consid¬ 
eration to American rights, nevertheless, the United States can not 
acquiesce in any procedure ostensibly or nominally in the form of taxa¬ 
tion or the exercise of eminent domain but really resulting in confiscation 
of private rights and arbitrary deprivation of vested rights.’ ” 

Since the above-quoted Senate resolution was filed there has been 
published an agreement entered into between Sir John Cadman and 
M. Philippe Berthelot at San Remo in April of this year. The agree¬ 
ment recites: 

“1. By order of the two Governments, France and Great Britain, 
the undersigned representatives have resumed by mutual consent the 
consideration of an agreement in reference to petroleum. 

“2. This agreement is based on the principles of a cordial colla¬ 
boration and the reciprocity in the countries where the petroleum in¬ 
terests of the nations can be amalgamated to advantage. The present 
memorandum refers to states or countries as follows: Rumania, Asia 
Minor, territories of the former Russian Empire, Galicia, the French 
colonies and the colonies of the British Crown. 

“3. This agreement may be extended to other countries by 
mutual consent. 

“4. Rumania: The Governments of Great Britain and France 
will lend their aid to their respective dependents in all negotiations 
which are to be started with the Rumanian Government for: 

“a. The purchase of oil and petroleum concessions, shares or other 
interests owned by former subjects or companies—of enemy origin— 
in Rumania, which have been sequestrated, for instance, the Steaua 
Romana, Concordia, Vega, etc., who constituted in said country the 
petroleum group of the Deutsche Bank and the Diskont Gesellschaft, 



at the same time as all other interests which it may be possible to take 
over. 

“b. The concessions of petroleum fields owned by the Rumanian 
State.” 

/ 

Though Article 3 states that the agreement may be extended to 
other countries by mutual consent, Article 5 seems to divide the enemy 
holdings into two equal parts—one French, the other British. Just 
what advantage other countries would gain under Article 3 remains— 
in view of Articles 5—to be elucidated. Article 5 reads as follows: 

“5. All shares belonging to former enemy concessions of which 
one may gain possession, and all other advantages drawn from these 
negotiations, will be divided on the basis of 50% to British and 50% to 
French interests. It is understood in the company or companies to be 
created in order to carry out the administration and exploitation of 
said shares, concessions and other advantages, the two countries are to 
have the same proportion of 50% of the capital subscribed as well as 
equal representation on the board and equal voting power.” 

Article 6 is of extreme significance. It reads as follows: 

/ 

”6. Territories of the former Russian Empire: In the territories 
belonging to the former Russian Empire the two Governments will give 
their joint support to their respective nationals in their common efforts 
with a view to obtain petroleum concessions and facilities for export, 
and to assure the delivery of petroleum supplies.” 

Under the operations of Article 6 how can American companies 
hope to compete successfully except with the same backing by the Ameri¬ 
can Government that France and Great Britain give to their nationals? 

Article 7 reads as follows: 

“Mesopotamia: The British Government binds itself to concede 
to the French Government, or the representative appointed by same, 
25% of the net production of crude oil at the current market price which 
H. B. M. Government may draw from Mesopotamia petroleum regions 
in the event of these regions being made productive by virtue of govern¬ 
ment exploitation; or in the event the government has recourse to a 
private company to exploit the Mesopotamia petroleum regions the 
British Government will place at the disposal of the French Government 
a participation of 25% in the said company. The amount to be paid 
for a participation of this kind should not exceed the amount paid by 
any other participant in the said petroleum company. It is also agreed 
that the said petroleum company is to be under the permanent control 
of Great Britain.” 


36 




Great Britain and France have parceled out Mesopotamia between 
them, and again the question rises, “What is the significance or value 
of Article 3, so far as gaining any foreign source or sources of production 
for American oil companies may be concerned?” 

Provision is made in other articles for transportation of oil, construc¬ 
tion of railways, port facilities, and so on. 

Article 14 reads as follows* 

“14. Northern Africa and other colonies. The French Govern¬ 
ment will accord facilities to any British group or groups of good stand¬ 
ing, which can offer the necessary guarantee, which will operate in 
conformity with French legislation for the acquisition of petroleum 
concessions in the colonies of France or in French protectorates or zones 
of influence, including Algeria, Tunis and Morocco. It is well to point 
out that the French Parliament has decided that groups formed under 
these conditions are obliged to contain at least 67% French interests.” 

This article is particularly interesting, as it indicates the policy 
of France in demanding 67% French interest in all petroleum companies 
in French territory. 

Article 16 indicates the British policy and reads as follows: 

“16. Colonies of the British Crown: As far as existing regulations 
will permit, the British Government will accord to the French nationals 
who may desire to explore and exploit petroleum regions in Crown 
Colonies, advantages corresponding to those France has accorded to 
British subjects in the French Colonies.” 

Article 18 closes the Project of Agreement, and reads as follows: 

“18. The present agreement has been initialed this day by M. 
Philippe Berthelot and Professor Sir John Cadman subject to ratifica¬ 
tion by the Prime Ministers of France and Great Britain respectively.” 

This, then, is the other side of the picture, in contrast with the 
“open-door” policy of the United States whereby foreigners have ever 
been welcome to compete in the petroleum industry here on terms of 
equality with nationals of the United States. 

Looking Into the Future 

A careful reading of this Project of Agreement should Convince the 
most skeptical that if United States oil companies are to make any 
headway whatever in the acquisition of foreign sources of supply they 
must have the same enthusuastic government support and cooperation 
as that extended to foreign nationals by their respective governments— 
as evidenced by the above-quoted document. 


37 


That other nations prize petroleum resources is evidenced by the 
rules and regulations covering their exploitation and by the attempts 
being made to acquire additional sources of supply in territory coming 
under Allied domination because of the Great War. Attempts on the 
part of American oil companies to gain foothold, in view of these regu¬ 
lations, would obviously meet with ignominious failure. There is 
therefore no alternative holding any prospect of success save cooperation 
by the Government of the United States with its nationals in an effort 
to unlock doors now closed to us and by amicable agreement gain access 
to petroleum fields throughout the world on terms of equality with others. 

To do this would require on the part of the Government of the 
United States the adoption of a foreign policy that in relation to raw 
materials will not be altered upon changes in administration at Wash¬ 
ington. Nothing could be more fatal to the morale of American industry 
engaged in foreign trade than the knowledge that the foreign policy of 
the United States as reflected in the activities of our State Department 
is liable to sudden and violent reversal because of the success at the polls 
of the party out of power. And yet just this reversal has taken place 
in years past, and carefully constructed diplomatic programs have been 
smashed to smithereens simply because the party in power was ousted. 

It is inconceivable, in the light of world events, that w T e should 
continue to justify such utter folly which not only creates friction where 
the greatest harmony should prevail, but is also an absolute injury to 
national welfare. We need and must have a definite United States 
policy regarding many things, a policy that will remain unchanged in 
principle from administration to administration, and the need for such 
a fixed foreign policy is nowhere more acutely emphasized than in the 
matter of raw materials. 

For a long time England and Continental Europe have been com¬ 
pelled to seek in other countries large proportions of the raw materials 
upon which their industrial life is founded. In the case of some raw 
materials imports to the extent of one hundred per cent are necessary, 
and in the case of mineral products the quantity in reserve is fixed, 
with the result that sources of supply must in future be sought in the 
less developed countries; countries not only sparsely populated, but 
whose inhabitants do not or can not avail themselves of these resources. 

At the moment the United States, so far as its supplies of raw 
materials are concerned, is more nearly independent than any other 
nation; but we are also by far the greatest consumer, and there are 
notable deficiencies—as, for example, tin, platinum, nickel, manganese 
and nitrates. The absolute necessity for keeping open during the war 
the lanes of communication with Chile so that niter should flow T unin¬ 
terruptedly caused the keenest anxiety in Washington; protracted 


38 


interruption of the supply would have resulted in the Allies’ loss of the 
war just as surely as the cutting off of the gasoline supply and the supply 
of lubricants would have had the same disastrous consequence. 

Germany is an example of a country cut off from petroleum in time 
of war, attempting the use of all kinds of substitutes, and failing success 
in the end in part because of the lack of those very petroleum supplies. 
With such an example before us it is scarecly conceivable that the 
United States will permit itself ever to reach such a position; and yet, 
notwithstanding the war and its lessons, we have done absolutely nothing 
to anticipate such a contingency. 

National necessity, having to do mainly with industrial problems, 
was the underlying cause of the Great War; and again in the future 
commercial conditions will play a similar role unless wise statesmanship 
forestalls the crisis and provides adequate means whereby the situation 
will be not only anticipated but controlled. 

The industrial life of every nation depends to-day upon the products 
of petroleum that lubricate the vehicles of transportation, by land and 
sea and air, as well as all the machinery engaged in supplying the manu¬ 
factured products which satisfy the needs of modern civilization. Power 
from petroleum we might conceivably do without, but lubrication with 
petroleum is indispensable. The collapse of industry spells national 
collapse, and it therefore follows that the nation must guard against 
any such contingency. 

W r e have had enough of war. The welter of blood, the carnage, the 
desolation and starvation that swept over Europe during 1914-1918 
and that is still taking toll of thousands of lives is the most eloquent 
argument in behalf of negotiated agreements. Is it Utopian to hope 
for peaceful settlements in future, rather than the decision that comes 
from the use of force and that as often as not proves nothing as to the 
justice of the cause? If it is, let us try Utopia for a while—surely it is 
worth the experiment—rather than appeal again to war, with repetition 
of the horrors that have engulfed Europe. These are the two roads 
the world may follow; than these there is none other. 

Throughout the world there are available large reserves of all the 
mineral raw materials—not inexhaustible quantities, but quantities 
sufficiently large to guarantee the requirements of modern civilization 
for an indefinite period; more of some and less of others, but of them all 
—considering every factor—petroleum the least. 

Due to the tremendous increase in consumption of raw materials, 
the struggle for possession of the world’s reserves has assumed of late 
years a more and more acute phase. Farseeing statesmen have long 
since realized the necessity for providing—so far as possible—unlimited 


39 



reserves to meet national requirements, not of to-day or of to-morrow, 
but for centuries—the longer the better. 

Rivalry for Control 

Unfortunately the very bounteousness of our supplies has made us 
indifferent to the future and wasteful beyond 4 expression in past and 
present. Other countries less plentifully endowed have been compelled 
to husband not only what resources they had but to seek control of 
foreign sources of supply. And out of it all—this great struggle for 
industrial supremacy—came the World War. The iron deposits of 
Alsace-Lorraine, the petroleum and other raw materials of the Near 
East, were the underlying reasons; the murder of the Archduke Francis 
Ferdinand at Sarajevo but the excuse. There was ample foundation 
for the Bismarckian cry, “Drang nach Osten,” for it was toward the 
East that Germany turned in hope of avoiding national stagnation. 

The termination of the war has not ended the struggle for possession 
of raw materials. Even during the war geologists and other specialists 
were scouring the world, and often their advance was contemporaneous 
with the advancing barrage. 

In the world contest for raw materials the struggle for petroleum 
will be most intense. The uses to which it is put are fundamental 
and vital; the demand has grown and will continue to grow at a rate 
exceeding that of any other of the great mineral products. New sources 
of petroleum supply must be sought in the undeveloped countries. 
Efforts of the nationals of each leading nation to control these supplies 
will involve friction so intense and severe that war may be the ultimate 
outcome of the struggle unless some plan is adopted by which the several 
conflicting national interests may be harmonized. 

The sea and air will not be free to all nations for purposes of inter¬ 
national commerce unless the source of petroleum and the petroleum 
products themselves are made available to all on equal terms and without 
discrimination. Control of some of the most important foreign sources 
of petroleum supply is now in the hands of American companies. This 
control must be solidified, the companies strengthened and a plan perfected 
whereby America can deliver fuel oil not only to her own ships but to 
the ships of the world at any port at which they may call. 

No matter what our international arrangements may be, how liberal 
or fair the proposed action, we shall be unable to reap our share of the 
benefits or fulfill our task unless we are able to perform it as efficiently 
as other nations. This at present we cannot do, and unless some con¬ 
structive action is taken the handicap against us will increase rather 
than diminish; due entirely to the foresight and wisdom of English 


40 




statesmanship, in contrast with our own abysmal ignorance and neglect 
of the fundamentals involved. 

England has been engaged for years in an effort to control the 
greater part of the petroleum reserves of the world. There has been 
no attempt at concealment; public officials have very frankly stated 
the objective, and have given the reasons impelling action with equal 
frankness. To this very laudable effort on the part of Englishmen to 
increase the power and the resources of the British Empire no individual 
can rightly object, and no nation can justly take umbrage at an action 
which might well have been followed by all the great nations with benefit 
to themselves and their peoples. It is simply the application of the 
doctrine “England first,” just as we say “America first” and France 
says “France first.” It is so with every nation, and quite rightly so; 
and to it all there is but one answer: Recognition of each other’s neces¬ 
sities and adjustment upon the broad basis of mutual welfare rather 
than a basis of selfishness and might. 

Adjustment should and can be made by international agreement. 
No one expects the petroleum companies themselves to arrive unaided 
at any such understanding. That is impossible. But a properly formu¬ 
lated international agreement, negotiated by governments, defining the 
rights and limitations under which the different nationals may operate, 
is not only possible but necessary if we are to maintain lasting peace. 
And that agreement must be founded on a very simple principle: Equal 
justice to all concerned. 

British Naval Needs 

It is true the peoples of the world have much to learn in the appli¬ 
cation of this broad principle. Economic pressure will probably have 
to be exerted in the course of demonstration. It is even conceivable 
that for a time and among the less enlightened nations force may have 
to be resorted to, for it is difficult to change the habits of centuries. 
But if the great nations of the world will take the lead the desired 
result is possible. 

Because of geographical location, the British Empire has a para¬ 
mount interest in the freedom of the seas which from the standpoint of 
national cohesion and existence transcends that of any other nation. 
An island insignificant in size is the nerve center from whence control 
of more than one-quarter of the globe is dictated—and this control is 
possible because of the British Navy, which since the days of Drake 
has been the bulwark of English freedom. Is it any wonder that on 
behalf of that navy which guarantees national existence efforts should 
be made to control the supply of fuel oil, which, Lord Fisher said, 
increases the strength of the British Navy thirty-three per cent? 


41 


England needs no apologist to justify a wise and statesmanlike 
procedure. An obvious situation existed, and the obvious remedy 
was applied. In the application, however, England cannot justify 
monopolistic control. We and other nations have too much at stake 
to view with equanimity such procedure. The effort of Germany to 
set up another Roman Empire by force failed; the effort of any nation 
to set up industrial monopolistic control by domination of the raw 
materials of the earth must meet similar fate through peaceful interna¬ 
tional agreement. 

The United States cannot sit idly by and witness the passing of the 
world’s petroleum reserves into foreign hands. With the world’s raw 
materials under control of England the League of Nations would be 
but hollow mockery so far as industrial freedom is concerned. It is 
true we might avoid war, but at the price of industrial vassalage. 
From petroleum alone the annual contributions to be exacted from the 
United States would in a comparatively short time amount to a sum 
sufficient to pay the war indebtedness of the British Empire. 

It is of course assumed that England has not really set as an ultimate 
goal the acquisition of all the petroleum reserves in foreign lands. 
Such a procedure would be shortsighted in the extreme, as it would at 
once raise the question of a world monopoly of which England would 
alone be the beneficiary—a procedure so charged with danger that its 
adoption seems hardly possible when once the United States invites 
attention to our mounting needs and our dominating position. Attempt 
on the part of England to wrest from us or to exclude us from these 
foreign sources of supply would scarcely be viewed with equanimity 
by the people of the United State«s, and surely not by the Government 
at Washington. There is moderation in all things, and we could no 
more justify monopolistic control than could England. The future 
holds a better part for both to play. 

International Harmony 

What applies to England applies equally and as strongly to us, 
though perhaps in different form. Modern civilization, with its means 
of communication, has destroyed forever our isolation; we cannot 
escape w^orld association, much as we might prefer isolation. We are 
confronted with conditions that we cannot alter, and it becomes our 
duty—distasteful as it may be—to accept the obligation imposed upon 
us. As a nation we are impulsive, idealistic, generous; we will go more 
than halfway in an effort to reach harmonious adjustment, but we are 
also intolerant of anything that smacks of dishonesty, deceit or sham. 
And certainly in the success of such an effort no two nations are so 


42 






vitally interested as the United States and England. If we do not 
lead the way, how can we expect other and less enlightened nations to 
accept the doctrines? 

No situation can be permitted to arise that will in any way tend 
to disturb the harmonious relations that now exist and that for the sake 
of humanity must ever continue to exist between the two great English- 
speaking nations of the world. It is conceivable that selfish interests 
would gladly embroil us—the Congressional Record holds evidence of 
that—but such propaganda must under no circumstances be permitted 
to yield the slightest result. More perhaps than any other two nations 
we are bound by common interests; more than any other nations we 
stand as the defenders of personal liberty; and more than any other 
nations we have been sponsors for modern civilization. 

That the United States should build a navy in competition with 
England or England one in competition with the United States would 
be a tragedy so profound as to be inexpressible—and yet if we fail to 
reach harmonious understanding on many things, not the least of which 
is petroleum, this very condition may arise. It follows therefore that 
those understandings must be reached. Under the League of Nations 
the peaceful settlement of such problems may be forthcoming, but it 
must also be remembered that if our oil companies are to perform 
adequately their task, and give that service which is the only justification 
for their existence from the standpoint of the public to be served, their 
facilities must be of a character that will permit service equal to that 
given by any other companies or combination of companies—for, after 
all, service is the foundation of industrial success. 

From an economic standpoint the building up by England of the 
tremendously powerful Anglo-Persian-Dutch-Shell combine can be met 
by the United States in one way and in only one way: Permission from 
our Government to form a combination equally strong, and assistance 
by our Government in maintaining our position in the oil fields of the 
world. Diplomatic adjustments are necessary and desirable, but un¬ 
less radical alterations be effected in the relations between our Govern¬ 
ment and our petroleum industry such adjustments would be of purely 
academic value owing to our inability under existing conditions to render 
the service as efficiently as our competitors. 

If we are to understand intelligently the problem confronting us, 
it requires that we consider the location of the present petroleum- 
producing areas, their relative importance and the probable significance 
of areas not yet productive but because of favorable geological struc¬ 
tures sufficiently attractive to merit development. It is of course quite 


) 



43 


impossible to say with any degree of accuracy what parts of the world 
may or may not produce oil. Great areas of Central Africa and other 
countries remain to be explored; South America holds possibilities only 
partially comprehended; Siberia and other northern countries are known 
to hold promise of future production; and even England and France 
may in time yield no mean contribution to the annual total. 

We are dealing with a mineral deep hidden beneath the surface 
of the earth that may or may not give outward evidence of what lies 
beneath. There are many oil fields that in the form of seepages give 
unmistakable evidence of what awaits the penetration of the drill; 
and there are other fields that, save for such data as the geologists 
may correlate, give absolutely no surface indication of what lies hidden 
below. The world as a whole has been but little mapped geologically, 
and will not be save as economic pressure makes such examination and 
mapping profitable; and the investigations are of course directed first 
to those localities most easy of exploitation, geographical location and 
possible profuse production both considered. 

It is fairly evident that the present producing areas must be 
re-enforced by new sources of supply if we are to keep pace with world 
demands. It was a comparatively simple matter twenty years ago to 
find the hundred and fifty million barrels of world production. The 
United States at that time found a production of sixty-four million 
barrels ample for its needs. In 1918, however, the world total had 
become five hundred and fifteen million, and for 1920 will approximate 
six hundred million barrels, of which the United States will produce and 
consume not less than four hundred and fifty million barrels, leaving 
for the rest of the world the remaining hundred and fifty million barrels. 

What of the Future? 

Think of it! We shall require three times as much oil as all the 
rest of the world combined. Is it any wonder that those familiar with 
the petroleum problem insistently urge constructive action by the 
Government of the United States? 

The finding of this six hundred million barrels of oil presents a 
problem in comparison with which the supply problem of the year 1900 
sinks into insignificance. Unfortunately ten years hence it will have 
become vastly more difficult, because of steadily mounting demands. 
The various substitutes must sooner or later bear part of the burden. 
Alcohol, benzol, oil from shale and other substitutes for petroleum will 
in years to come play a role constantly increasing in importance. 


44 



Keeping in mind the necessity for drawing more and more on 
foreign fields, it will be of interest to study the location and relative 
importance of those fields already producing petroleum. For this 
purpose the table at the bottom of this page—compiled by G. B. Richard¬ 
son, of the United States Geological Survey, and reproduced from an 
article by David White, of the United States Geological Survey—will 
be illuminative. 

Reference to this tabulation will show the somewhat disconcerting 
fact that more than sixty per cent of all the oil produced up to 1919 
throughout the world has come from the United States. Russia is the 
only country in any way comparable, and even its production is only 
twenty-five per cent of the total. Taking the two together, and adding 
Mexico, we account for about ninety per cent of the world’s total 
production. Similarly, the production in 1918 of the United States 
and Mexico exceeds eighty per cent of the year’s total, and again adding 
Russia we closely approximate ninety per cent—leaving to the entire 
balance of the world the remaining ten per cent. To realize the over¬ 
whelming predominance of the United States needs only a consideration 
of the following figures. 


PRODUCTION TOTAL PRODUCTION 


COUNTRY 1918 

Barrels of 42 
Gallons 

United States.355,927,716 

Mexico. 63,929,327 

Russia. 40,456,182 

Dutch East Indies.... 13,284,936 

Rumania. 8,730,235 

India. 8,000,000 

Persia. 7,200,000 

Galicia. 5,591,620 

Peru. 2,536,102 

Japan and Formosa... 2,449,069 

Trinidad. 2,082,068 

Egypt. 2,079,750 

Argentina. 1,321,315 

Germany. 711,260 

Canada. 304,741 

Venezuela. 190,080 j 

Italy. 35,953 j 

Cuba. 

Other countries. . 

514,729,354 


1857-1917 


Per Cent 
of Total 

Barrels of 42 
Gallons 

Per Cent 
of Total 

69.15 

4,608,571,719 

61.42 

12.40 

285,182,489 

3.80 

7.86 

1,873,039,199 

24.96 

2.58 

188,388,513 

2.51 

1.70 

151,408,411 

2.02 

1.55 

106,162,365 

1.41 

1.49 

14,056,063 

.19 

1.09 

154,051,273 

2.05 

.49 

24,414,387 

.33 

.48 

38,498,247 

.51 

.40 

7,432,391 

.10 

.26 

4,848,436 

.07 

.26 

4,296,093 

.06 

.14 

16,664,121 

.22 

.06 

.04 

24,425,770 

317,823 

.33 

973,671 

-.02 


19,167 


397,000 

> 


99.95 

7,503,147,138 

100.00 


45 



























# 


Government Support Needed 

It is impossible to say with any exactitude what will be the relative 
production from foreign fields in the future. It would be highly mis¬ 
leading to assume that the future relative importance of these oil fields 
bears close connection to past standards, but the following list gives 
some idea of the countries that will come into prominence in calculations 
having to do with supplying future w T orld demands: 


COUNTRIES OWNERSHIP 

Mexico.American—English—Dutch 

Russia (including Siberia and the 

Caucasus.Russian—English—Dutch 

Persia.English—French 

Mesopotamia.English—French 

Venezuela.English—Dutch—American 

Colombia.English—Dutch—American 

Bolivia.Undetermined 

Peru.English—American 

Rumania.English—Dutch—American—French 

India.Exclusively English 

Trinidad.English 

Argentina.Argentine Government 

Africa.French—English—Dutch 

Central America.American—English 


In addition to these, there are many other countries that will pro¬ 
duce oil in greater or less quantities; some will perhaps produce it in 
quantities much in excess of some of the countries listed above—time 
and the drill alone can answer the question. 

No man may prophesy with assurance the possibilities of the future. 
The undreamed-of is ever within the bounds of possibility; but no nation 
dare risk its industrial future on the problematical accomplishment of 
some revolutionary discovery now deemed highly improbable. It 
therefore becomes the duty of our representatives at Washington so to 
plan that we shall be completely safeguarded as to the known and proved 
factors upon w T hich is built the petroleum industry of to-day—an indus¬ 
try without which the wheels of the world w^ould stand idle for lack of 
suitable lubricants. 

Consideration of this vital problem cannot with safety be delayed. 
As the tw r o great nations most gravely concerned in the amicable 
adjustment of this situation, the United States and Great Britain 


46 





















should initiate procedure and invite other interested nations to join 
with them in formulating an international petroleum policy and program. 
It is obvious that the petroleum companies themselves cannot initiate 
negotiations of this character; such activity is the function of govern¬ 
ment, and must therefore be undertaken by those governments whose 
interests are involved. 

It is a w'orld problem which confronts us. The world obligation 
with reference to petroleum cannot be ignored. It must be satisfactorily 
met; mutual rights must be regarded; mutual trust must be established; 
and there must prevail a mutual recognition of the great fundamental 
principle that banishment of war can come only through establishing 
and maintaining commercial and economic justice. 


47 

































































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